10 May 2019 | BI and data analysis, Pricing strategy, Revenue management, Rate parity, Industry technology, Distribution
In this two-part series, we break down the technology and techniques that help hoteliers boost the metrics that matter. First up, we focus on the technology side of the equation, with side-notes on related techniques. In the follow-up article, published next week, we’ll expand on these and other impactful techniques. Deployed in tandem, these technologies and techniques drive stronger results.
RevPAR is one of the most common metrics used by hotels to measure property performance and benchmark against the competition; indeed, when we ran a poll last year asking hoteliers which KPIs were most important to them, RevPAR took 53% of the vote. While it’s only one of many metrics hoteliers should focus on, RevPAR is a strong and relatively reliable bellwether. Alongside occupancy rate, ADR, and total revenue, it’s a core indicator that shows how well a hotel is leveraging its asset.
Many hotels also strive for efficient distribution, and thus calculate room revenue minus all commissions, incentives, and other distribution costs. This is NetRevPAR, an accurate depiction of how well the hotel performs at earning bookings at the lowest possible cost. For the other hotel metrics that matter, the most crucial KPIs for success include forecast demand, channel mix, website conversion rate, segment mix, parity percentage, guest satisfaction scores.
The following technologies are essential components of a profitable hotel operation. We pulled these tools into a standalone resource for hoteliers that want a best-practices approach to hotel technology. Each section features one tech best practice, followed by the relevant metrics that it impacts the most.
According to one Expedia study, 80% of respondents choose OTAs for the convenience of booking everything in one place. Simplicity, speed and accuracy also factor, as does the intuitive interface optimised for the best user experience.
To compete, hotels must invest in modern websites with rich imagery that speaks to target guest demographics, as well as a mobile-optimised booking flow. The website must function equally well, regardless of how the consumer accesses it. Hotels must also optimise websites for conversion, using techniques like A/B testing, landing pages, persuasive messaging, secret deals, abandoned cart recovery, and exit pop-ups to improve look-to-book ratios. Most importantly, a “book now” button should be integrated into each and every page to give a clear path to booking.
Extra credit: Expand your focus on your best guests by connecting your CRM marketing activities to your booking engine. By automatically importing relevant details into the booking flow, your hotel can win favour with its best guests.
Metrics affected: website conversion rate, channel mix, Direct Revenue Ratio, occupancy rate
Read more about direct bookings engines.
An upgraded booking experience can counteract rising commissions paid out to intermediaries. Cost inflation has led to an intense focus on direct booking, as hotels pursue more business that preserves profitability at the booking level.
The cost associated with direct bookings is much lower, per Kalibri Labs data.
However, blindly pursuing direct bookings without understanding the true cost of each booking is dangerous. Each hotel has its own unique revenue footprint, which shapes the profitability characteristics of each booking. Some hotels may find that direct bookings are less lucrative than expected once accounting for marketing expenses and time invested in managing campaigns.
For more precise revenue management, hotels need a business intelligence tool, a channel manager, and forecasting tools to achieve peak profitability. A lost booking, or a booking at a lower rate than expected, has a negative effect on several metrics, including RevPAR.
Metrics affected: NetRevPAR, RevPAR, Room Nights, ADR, channel mix, market segments, Revenue Generation Index, occupancy rate
Read more about data-driven revenue management best practices.
Less intrusive, more accurate upselling makes hotels more money. The secret sauce is one-part automation and two-parts segmentation. Smart CRMs will help hoteliers automate messaging to ensure that the right offer is made in the best channel for a specific guest. The ideal CRM also automatically takes engagement into account and iterates segments to improve conversion.
For example, leading hotels leverage chatbots as extensions to the existing customer service options. Automated messaging bots boost brand consistency and accessibility not just on a hotel's website but also on platforms where consumers regularly engage, such as Facebook Messenger and WeChat. Engagement on these platforms is then fed into the CRM to influence segmentation and marketing messaging.
Transparency also helps: The boldest hotels show potential guests relevant room prices on other channels. These OTA comparison pop-ups give guests the confidence to stop shopping and book direct.
Metrics affected: channel mix, NetRevPAR, Total Revenue Per Available Room (TRevPAR)
Read more about using segmentation to optimise hotel revenue.
Rate parity is important because disparity cuts into your hotel’s profits, confuses customers, and causes tension between distribution partners. And while you may have parity written into your legal agreements with OTAs, parity is still difficult to enforce. OTAs have low overheads, allowing them to remain profitable while undercutting your hotel’s best available rates.
Rate disparity also damages your hotel’s brand reputation. Guests will wonder why there’s inconsistency, and question whether they’re getting good value for money.
For revenue managers who already deal with the flux in demand that is characteristic of the hotel industry, rate disparity brings an extra layer of complexity into your hotel’s pricing strategy, playing mischief with your supply and demand curves. When your rooms are sold for less than forecast it may lead to missed revenue targets that challenge overall profitability, so you need real-time tools that can help you monitor the situation, identify and prioritise problems, and take measures to fix them.
“A hotel must monitor its channels on a daily basis to maintain a firm understanding of its actual distribution. Things change constantly, so the only way to maintain control is to pay attention to these changes every day.” - Clive Wood, Global Commercial Manager for Parity Insight
Metrics affected: ADR, RevPAR, NetRevPAR, Average Rate Index, Revenue Generation Index
Read more about optimising pricing via the setting and managing of rates.
A stronger reputation leads to more revenue. This has really become a maxim for hotel management, as a positive reputation leads to higher rankings across the platforms where travellers search and book hotels.
As evidenced in the graphic, right, courtesy of a recent Skift experiential traveler survey, recommendations from friends and family are also key sources of information. When nurturing your hotel’s reputation, include past guests in your strategy. Integrate your post-stay process into the CRM so that outreach is automated, feedback is collected and acted upon, and reviews are encouraged.
The reputation management process is a virtuous circle: With regular, honest feedback, you can improve your hotel’s operation, which then earns more positive guest reviews. The cycle continues and your hotel continuously improves its guest satisfaction scores - and profitability.
Metrics affected: guest satisfaction scores, review ratings, website conversion rates, channel mix, NetRevPAR, occupancy rate.
Read more about effective reputation management for your hotel.
Look out for next week’s follow-up post!
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